Rents rising on Mag Mile

In a sign that retailers are willing to invest in showcase stores again, rent on North Michigan Avenue has climbed in the past year to the highest level since 2001, according to an annual survey

June 18, 2011|By Sandra M. Jones, Tribune reporter

This week, AllSaints Spitalfields, Britain's edgy upscale clothing retailer, plans to open an 11,000-square-foot flagship at 700 N. Michigan Ave., the site of the former Chicago Place mall. (David Pierini, Chicago Tribune)

The price to set up shop on the Magnificent Mile is soaring.

In a sign that retailers are again willing to invest in showcase stores, rent on North Michigan Avenue has climbed in the past year to the highest level since 2001, according to an annual survey from retail real estate firm CB Richard Ellis Inc., provided exclusively to the Chicago Tribune.

The gains come as British retailers AllSaints Spitalfields and Topshop get ready to debut on the street and Burberry prepares to tear down its modest flagship and replace it with a bigger, more dramatic store.

"The reality is that the street's hot right now," said Bruce Kaplan, senior vice president of brokerage services at CBRE in Chicago and author of the report. "If there's a recession, you wouldn't know it looking at Michigan Avenue."

The average asking rent, or list price, increased 53 percent in the 12 months ended May 31 to $127.42 per square foot, almost on par with the peak of $128.42 in 2001, the firm said. At the same time, the vacancy rate remained stable at 3.7 percent, compared with 3.6 percent in the same period in 2010.

The report tracks the 3.15 million square feet of retail space on North Michigan Avenue between the Chicago River and Oak Street. It includes the street's five department stores and three vertical malls.

The most sought-after locations on North Michigan Avenue (typically ground-floor space with an entrance on the street) are commanding record rents, Kaplan said. Prime rent on the Mag Mile was $480 in the first quarter of 2011 and is forecast to go as high as $550 in the next couple of years, according to CBRE.

Chicago's Mag Mile ranks as the third most expensive street in the U.S., behind Rodeo Drive in Los Angeles, where prime rent is $520, and Fifth Avenue in New York at $1,900, according to CBRE. Worldwide, North Michigan Avenue ranks No. 15.

The Mag Mile's popularity comes as prestigious shopping boulevards, or so-called high streets, around the world are flourishing after years of lackluster performance. The rebound in luxury spending and the expansion of international retailers have combined to fuel global demand for these prime retail spots.

European fashion houses from Louis Vuitton to Gucci Group — flush with profits as the wealthy recover from the financial meltdown — are looking to expand their high street presence. And fast-growing affordable-fashion chains from Japan's Uniqlo to Spain's Zara, eager to grab the best locations for themselves, are helping drive up rents.

Last year, Japan's fast-fashion Uniqlo chain paid an eye-popping $2,000 a square foot to establish its U.S. flagship on Fifth Avenue in New York. The 15-year lease, reported to be a New York City record, is valued at more than $300 million.

"U.S. cities have started to follow the European meccas of high streets who know how to build shopping experiences that mix designer with affordable luxury with specialty brands," said Tom Julian, president of New York-based Tom Julian Group, a brand consulting firm.

This week, AllSaints Spitalfields, Britain's edgy upscale clothing retailer, plans to open an 11,000-square-foot flagship at 700 N. Michigan Ave., the site of the former Chicago Place mall.

In the fall, Britain's Topshop is scheduled to move into the shuttered Borders bookstore at 830 N. Michigan. The 30,000-square-foot Midwest flagship will mark the hipster clothing chain's second U.S. store. The first opened in the SoHo neighborhood of Manhattan in 2009.

Burberry, the British luxury firm known for its $1,000 trench coats, is moving into the former Kenneth Cole space at the Shops at North Bridge while it tears down and rebuilds its Midwest flagship at 633 N. Michigan Ave., where it has operated since 1981.

And Stuart Weitzman, the high-end shoe store, is returning to the boulevard, taking over the space at 701 N. Michigan Ave. recently vacated by mass-market shoe store Nine West, the Tribune has learned. Both shoe brands are owned by New York-based Jones Group.

Stuart Weitzman moved out of a prime street-level space at 900 N. Michigan Ave. in 2009 before Jones Group bought its 55 percent stake in the company. Stuart Weitzman currently has a small outpost inside the Shops at North Bridge mall. Nine West, for its part, moved down the street to the Water Tower Place mall.

"One of the many benefits of being a part of the Jones Group is the ability to optimize our prime locations to best position our brands," said Richard Dickson, CEO and president of branded business at Jones Group. "Stuart Weitzman's new location on the Magnificent Mile gives the brand a premier location."

Retail consultant Paula Rosenblum says the resurgence in showcase stores on famous shopping streets has just begun. Retailers are being forced to create memorable in-store experiences to combat the encroachment of Internet sales.

"If the store doesn't get modernized and refreshed and have a spirit of entertainment, it just becomes a showroom for buying on the Web," said Rosenblum, managing partner at Retail Systems Research in Miami. "A flagship by definition is the banner of the brand. If you want to get a lot of eyeballs, the place to do it is on the streets with the most tourists. It's all about marketing."